“There is more uncertainty to come”

Posted on 16 Jul 2009 by The Manufacturer

Mark Young summarises an SMMT automotive industry update webinar from Wednesday July 15

The automotive industry faces ongoing uncertainty and will have to endure a long road to recovery, in a journey that some will not complete. This was the message in an industry update webinar held by the Society of Motor Manufacturers and Traders yesterday.

Though Paul Everitt, SMMT chief executive, announced the organisation has increased its forecasts for new car registrations this year by about 150,000, to 1.825m in total, he said demand is still low and the industry is having to contend with an ongoing reluctance on the banks’ behalf to offer the sector credit and frustratingly slow action from government with regards to its own assistance initiatives.

In fact, Everitt revealed no money whatsoever has been handed over through the loudly announced £2.3bn Automotive Assistance Programme which was introduced by government at the start of the year. He said we should expect a “fairly significant announcement” regarding the scheme soon and said he has been assured that all the money will be distributed, with no under-spend expected.

Government’s other flagship automotive stimulation initiative, the scrappage scheme, does appear to be faring a little better though. The SMMT estimates 111,000 orders have been placed through the ‘cash for bangers’ programme with 30,000 of those having been delivered by the end of June. “Clearly we are hoping the cumulative impacts of the (scrappage) schemes that are running across Europe will start to have a more positive impact for UK plants,” said Everitt.

The SMMT boss said some of these positive effects are in fact being realised already, with Nissan and Mini among those beginning to recruit back some of the staff they had previously made redundant in response to an albeit modest spike in demand.

Ian Henry of Auto Analysis also presented trends along with his views on the industry during the webinar. He summarised the last year and ongoing prospects for automotive as “severe flux and unprecedented uncertainty”.

He described himself as “rather concerned” about the prospects of Jaguar Land Rover, saying: “I don’t see how a vehicle producer making less than 200,000 cars a year can survive.” He also expressed doubt over whether JLR’s Indian owners Tata have the bank balance to plug the company’s finance gaps and continue to operate its three UK plants.

And, with the all-but-certain collapse of LDV, the future of light commercial vehicle manufacturing in the UK looks bleak too. In a “brutally honest assessment,” Henry said he cannot see any future for van manufacture in Britain past 2012 – the time when Renault is due to dedicate one of its factories in France solely to the task and Vauxhall’s Luton plant’s contracts are scheduled to end. He said Ford’s facilities in Southampton for making vans will most likely become a specialist-only venture.

Dwelling on Fiat chief Sergio Marchionne’s recent comments that in the future only five or six global car manufacturing groups will be able to compete in a sustainable manner, Henry said there are pros and cons to this argument.

Henry agreed that there are “too many vehicle manufacturers with many lacking in scale, despite most having sought the goal of globalisation.” This has led to overcapacity and while, in Henry’s opinion, firms need to look at reducing their plants and therefore their capacity, many across Europe are opening more.

But Henry also warned that mergers and takeovers can be risky, citing failed ventures where a group has not been able to integrate a new marque into its portfolio like Ford with Volvo and GM Europe with Saab. In some instances, both sides of the merger lose value through a failed merger, such as in the case of DaimlerChrysler.

Henry went on to summarise the current fortunes and concerns of some of the major car manufacturers.

• He labelled Ford as “possibly the leader in creating a trans-Atlantic operation” due to the efficiency measures it is taking in its European factories and for its plans to utilise its successful European platforms in the US. He also pointed out that Ford is the only US vehicle manufacturer not to call on state aid.

• Henry said Honda is likely to remain in Europe but will be “less ambitious than before”. He pointed to the firm’s long UK production break and a slimming down of its operations in Turkey as the evidence for this

• Henry described Hyundai-Kia as “a good news story for some suppliers” after revealing the manufacturer is adding a new factory in Russia, a new engine plant somewhere else in Europe and is to switch production of a new small model from Indian plant to a European one.

Peugeot Citroen PSA is one of the only major manufacturers taking a direct and advanced role in its supplier’s interests according to Henry, but he questioned why the firm is continuing to expand a production plant in Portugal. He said a global partner is essential for the firm’s future prospects and said an alliance with Mitsubishi “is the start, but it is not enough.”

• Henry said Renault-Dacia-Nissan could possibly be the model for global alliances, saying its cross shareholdings and shared platforms appear to be working successfully “in Europe, at least”.

• There is “every reason to believe VW-Porsche will continue to be the leading European vehicle manufacturer,” according to Henry. He said the likely end to the on-going cat and mouse takeover situation between the two is for Porsche to be absorbed into Volkswagen but said the group as a whole is expanding capacity and has a strong model pipeline.

• Henry pointed out Fiat is still currently making a loss but pointed to its ambitious globalisation and merger initiatives as an indicator that the firm will continue to be prominent in the industry going forward. He said he expects FiatChrysler’s next step to be a matrimony with a Japanese player.

• Henry said it remains to be seen whether the premium German brands like BMW and Mercedes will have the capability to continue an independent path when the industry begins to take a new shape the other side of the downturn.

In a summary which will settle few nerves for those connected with the automotive industry, Henry said the foreseeable future, though hard to predict, is likely to see demand cut permanently by 20 per cent and at least five or six major European plants close.

However, “there is only one thing we can be certain of,” he says… “There is more uncertainty to come.”

Mark Young